The cost to public sector bodies (PSBs) of engaging contractors since the introduction of new IR35 rules in April has soared as end clients scramble to attract and keep flexible talent, new data from the Association of Professional Staffing Companies (APSCo) has revealed.
A new survey of APSCo’s professional recruitment consultancies shows that 45 per cent saw the cost of resourcing contracting professionals rise significantly since the implementation of the new IR35 rules. Of these, 46 per cent reported that pay rates have surged by over 15 per cent.
Overall, 70 per cent of respondents said that the number of PSB contractors working through their own Personal Service Companies (PSCs) has decreased since April this year. One year prior, over half of APSCo respondents reported that more than 75 per cent of their PSB contractors were working via PSCs. By August this year, this figure collapsed to 20 per cent.
In the meantime, the use of Umbrella Companies by contractors choosing to stay in the public sector has grown, as 82 per cent of APSCo respondents reported a rise in this area.
Other findings show that 51 per cent of those polled said that end clients do not have access to the tools and knowledge needed for making correct IR35 determinations, while 43 per cent opined that HMRC’s employment status tool does not give sufficiently reliable results.
Also, 78 per cent of respondents said that extending the new IR35 rules to the private sector will seriously undermine the ability of the UK economy to source flexible labour.
APSCo’s Director of Operations, Samantha Hurley, remarked: “As we feared, it seems that these changes have had an adverse effect on the supply of contractors to the public sector.”
The rising costs, she explained, are attributable to the scarcity of flexible talent caused by contracting professionals moving to the private sector and the market adjusting by passing on increased tax and NI costs to PSB end clients. She added: “As APSCo warned, it would appear that HMRC’s calculations of anticipated savings, which didn’t take into account additional expense to the public sector, will be over-ambitious.”
APSCo members expect the rise in Umbrella Company usage to continue, she noted.
Ms Hurley cautioned HMRC to suspend any plans to extend IR35 to the private sector, as the research evidence from the public sector provided by APSCo and others suggests that this move will have an adverse effect on the strength of the UK’s labour market and wider economy.
ContractorCalculator’s founder and CEO, Dave Chaplin, concurred, adding: “Our research, along with this latest APSCo survey, supports the overwhelming evidence that any further roll out to the private sector would be hugely damaging to the UK overall.”